Electric car subsidies deserve negative vote

July 31, 2010

In the current hype about electric vehicles, too little attention has been paid to the checkered history of subsidizing alternative energy technologies.

Just as the electric vehicle is being hailed as America's cure for oil addiction, the same was said not too long ago about biofuels. But mandating the production and use of corn-based ethanol jacked up food prices, depleted scarce groundwater resources and cost consumers more to fill up their cars. Despite generous federal and state subsidies, many ethanol producers have gone out of business.

No less ambitious was President Jimmy Carter's decision to promote synthetic fuels after the energy crisis in the late 1970s. The main problem with Carter's program was that the process by which so-called synfuels are produced is extremely energy-intensive. Three times more energy is required to produce a barrel of synthetic oil than using conventional drilling, and in the end the synfuels program failed.

Now, in the wake of the Gulf of Mexico oil-spill disaster, President Obama wants to spend up to $6 billion developing electric cars. This would be in addition to billions of dollars in tax incentives for electric vehicle research, production and deployment. His goal is to move America toward a post-oil energy future.

The quest for an electric car is not new. Electric cars were developed in the early days of the automobile, but they wound up on the sidelines due to the obvious advantages of the internal combustion engine and petroleum fuels in terms of cost, performance and quick refueling.

The emergence of hybrid electric vehicles about a decade ago proved to be a valuable complement to conventional automobiles, but the internal combustion engine in hybrid vehicles produces the power while the battery and electric motor simply store surplus energy and recover it later.

The reality is that oil remains an absolutely critical commodity in modern society. The Deepwater Explorer disaster, while tragic, doesn't justify giving up on oil or, for that matter, the American car. Oil provides us with unprecedented mobility, comfort and convenience.

In theory, electric vehicles have the potential to move energy demand away from oil. The pure battery electric vehicles forgo the internal combustion engine altogether and run solely on the electricity grid. Nearly two dozen car companies are preparing to launch plug-in electric vehicles within the next few years.

The electric vehicle may have a future, but Washington can't force it with costly subsidies. Currently there is a $7,500 tax credit for electric vehicles. Proposed legislation in Congress would raise the tax credit to $10,000 for consumers in 15 communities and cities around the country that would receive grants of $250 million each to establish charging stations for electric vehicles. Altogether, the measure would provide $11 billion for battery research and electric vehicle manufacturing and deployment.

It is ironic that many supposed proponents of free-enterprise capitalism have so little faith in the ingenuity and vitality of the marketplace when it's used to create a market for electric vehicles. Can a bunch of technocrats in Washington really make better decisions than free consumers in the marketplace? No case exists for subsidizing the electric vehicle. The government should remain technology-neutral. Subsidies hinder the ability of free enterprise to innovate and develop other advanced auto technologies like the hydrogen fuel cell. The right way to create a diverse market for advanced technologies is to limit government involvement and introduce real tax reforms.

Government subsidies serve only to tilt the playing field and constrain the market's ability to operate. They are not in America's best interests.

If Republicans regain control of Congress, they need to eliminate subsidies for electric vehicles and show they are interested in building a diverse and robust energy market. To do that successfully, they must make it crystal clear they are not in the business of picking winners and losers.

Mark J. Perry is a professor of economics and finance at the University of Michigan's Flint campus and an adjunct scholar the American Enterprise Institute for Public Policy Research.